CONSUMER PRICE INFLATION DIPS TO 5.02%

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Retail inflation dipped to a three-month low of 5.02 percent in September, primarily driven by the easing of food prices. While Finance Minister Nirmala Sitharaman cautioned that ongoing global uncertainties and domestic disruptions could sustain inflationary pressures in the coming months.

Consumer Price Inflation (CPI), which is based on the Consumer Price Index (CPI), has re-entered the Reserve Bank’s target range of below 6 percent after a two-month hiatus. Core CPI inflation also moderated, dropping to 4.5 percent in September from 4.8 percent in August, as noted by economists.

In comparison, inflation stood at 6.83 percent in August and 7.41 percent in September 2022. Sitharaman conveyed her concerns during a World Bank meeting in Marrakech, emphasizing the need for vigilance by both the government and the RBI, as well as the preemptive measures taken to curb food inflation.

Data from the National Statistical Office (NSO) reveals that inflation in the food basket decreased to 6.56 percent in September from 9.94 percent in the previous month, largely due to a significant drop in tomato prices that had driven headline retail inflation to 7.44 percent in July, the highest in 15 months. However, inflationary pressures persisted in the food segment, excluding vegetables.

Economists, such as Suman Chowdhury, Chief Economist and Head of Research at Acuite Ratings & Research, anticipate that geopolitical risks, rising oil prices, and food output concerns will keep the RBI’s monetary policy committee (MPC) cautious. They believe any change in the monetary policy stance is likely to occur in the next fiscal year.

Gaura Sen Gupta, India Economist at IDFC First Bank, noted that over 50 percent of the food and beverages sub-components continued to experience inflation exceeding 6 percent in September. Aditi Nayar, Chief Economist at Icra, expressed concerns about the outlook for food inflation due to factors such as an uneven monsoon, delayed sowing of key kharif crops like pulses and oilseeds, and modest reservoir levels.

Meanwhile, a low base effect contributed to factory output reaching a 14-month high of 10.3 percent in August, according to data from the Ministry of Statistics and Programme Implementation. Madan Sabnavis, Chief Economist at Bank of Baroda, cautioned that this high growth should be considered in light of the base effect and its potential impact on corporate sales during Q2.

All manufacturing sectors reported positive growth, except for garments and chemicals, possibly due to slower export growth. The electronics industry also experienced negative growth, which could be linked to high existing inventories and reduced export demand. Mining grew by 12.3 percent, manufacturing by 9.3 percent, and power by 15.3 percent. Capital goods production increased by 12.6 percent, while consumer durables and consumer non-durables output expanded by 5.7 percent and 9.0 percent, respectively.

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